(Article from Insurance Law Alert, March 2019)
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A New York federal district court dismissed a policyholder’s suit against its liability insurer, finding that the policyholder breached the notice provisions and that there was no valid reason for the delay. K.B.K. Huntington Corp. v. Hanover Ins. Co., 2019 WL 1230408 (E.D.N.Y. Mar. 14, 2019).
In October 2003, the Department of Environmental Conservation (“DEC”) issued a Notice of Claim to the policyholder, a dry cleaning business, about the potential existence of hazardous waste conditions. In March 2012, the DEC issued a Record of Decision identifying the policyholder as a potentially responsible party (“PRP”) for the contamination. In May 2016, the policyholder sent a notice of a claim to its insurer. The insurer denied coverage based on late notice. Thereafter the policyholder brought suit seeking injunctive and declaratory relief.
A New York district court dismissed the action, finding that the policyholder breached policy provisions requiring notice of an occurrence “as soon as practicable” and notice of any claim “immediately.” The court ruled that an “occurrence” happened in October 2002, when the policyholder received a Notice of Claim from the DEC and that a “claim” was made, at the very latest, in March 2012, when a Record of Decision was issued. Although the Second Circuit has not expressly held that receipt of a PRP letter constitutes a claim, the court noted the “litany of lower court cases” treating such letters as claims.
The court further held that the length of delay—four years as to notice of claim and thirteen years as to notice of occurrence—was unreasonable and that there was no valid basis for excusing such delay. The policyholder argued that the untimely notice should be excused based on its lack of knowledge of the policy’s existence and the poor health of the dry cleaning business’s owner. Rejecting these arguments, the court noted that the policyholder did not begin looking for an insurance policy for more than ten years after learning of potential liability and therefore failed to “exercise the minimal diligence necessary” to discover the policy sooner. The court further explained that while a medical emergency might justify a delay in certain cases, “a person who chooses to continue operating a business over a long period of time, despite affliction from health issues, cannot use their situation as a shield against the basic responsibilities arising in the ordinary course of business.”